Transparent Lease: Laws, Rules, Open Data

Notes from the second module on “Lease” of the online school “Transparent privatization and lease: How do they work? How to control them?”

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You will read here about the lease regulatory framework, the subjects of a lease, how and where to choose the object of lease, and how the lease payment and the guarantee fee are charged.

The online course is conducted by the Internews-Ukraine NGO and VoxUkraine as part of a project by the Institute for War and Peace Reporting (IWPR) with the support of the Ministry of Foreign Affairs of the Kingdom of Norway and in partnership with USAID EDGE.

Find detailed information about the course here.

Read notes from the grand opening of the course and the first module on “Privatization”.

The lecturers of the second module were Vladyslav Uryvskyi, a project manager of Prozorro.Sales SOE and Anna Ulyanytska, a freelance advisor to the First Deputy Chairman of the State Property Fund of Ukraine.

Changes in the lease of state and communal property: what is the regulatory framework

Before the adoption of the new law, the lease was regulated by the law on the lease of state and communal property, adopted back in the 1990s. At that time, there was no clear procedure for lease, tenders were closed, and information about objects of the lease was hidden. In February 2020, the Law of Ukraine “On Lease of State and Communal Property” (hereinafter referred to as the Law) entered into force. It is supplemented by government decrees of June 3, 2020, № 483 ”Some issues of the lease of state and communal property” and one of August 12, 2020, № 820 “On approval of state property lease model agreements”.

Lists of property available for lease are published in the Prozorro.Sales system and on the State Property Fund website. The lease takes place in transparent online auctions, all information about them and lease agreements is publicly available.

The first type list is a list of objects for which a decision has been made to lease them at auction. The second type list is a list of objects for which a decision has been made to lease without an auction. Public authorities usually lease properties without an auction.

There is information about state real estate vacant for lease, which includes the cost of the object, purpose, whether the object can be subleased, the state of communications of the object, etc, on the https://orenda.gov.ua/ page. 

You can also find information about objects of lease and announced auctions on the Prozorro website. Keyword sales (the module is put into operation) or on the websites with united platforms.

Lease for “beneficiaries”

Who has the right to lease a property without an auction?

There are two types of benefits recipients: government agencies that rent a property for 1 hryvnia per year, and organizations that can rent a property without holding an auction at a reduced rate. These are museums, private educational institutions, public organizations, etc. The full list is in Article 15 of the Law.

Due to the complexity of the procedure, the demand for preferential leases has fallen drastically. The old legislation opened up a lot of room for abuse, and many organizations that did not actually have the right to preferential lease used this opportunity by calling themselves museums or public organizations. 

Who is applying for a preferential lease and how much they will pay, can be checked on the State Property Fund website and in the Prozorro.Sales system.

Subjects of lease relations: who is a lessor, a management body, and a property holder

The lessor for state property is the State Property Fund of Ukraine or its regional branches, and for the communal property is the body to which the local council has delegated the authority to lease property.

The lessor may also be a juridical person (a property holder), on the balance of which the object is accounted. But there are restrictions: if there is not more than 400 sq.m. property on the balance sheet. If there are more square meters, then the State Property Fund is a lessor. Local authorities may impose stricter restrictions.

For example, the Kyiv City Council approved a limit of 200 sq.m. for cases when a property holder is a juridical person.

Each property holder has its own governing body, in most cases, it is the governing body that approves the property holder’s decision to lease the property. For example, the decision to lease university premises must be approved by the Ministry of Education and Science of Ukraine.

Natural and legal persons who are subject to sanctions, whose information on beneficial owners has not been disclosed, who are in bankruptcy or winding-up proceedings, who are included in FATF list of states that do not cooperate in the field of anti-money laundering, also, employees of the lessor or property holder cannot be a lessee (Article 4 of the Law “On Lease of State and Communal Property”).

How is the starting lease fee calculated and how long the lease term can be. Extension of the lease term

The lease term is 5 years. A term can be shorter at the request of the applicant or for seasonal use. A leasing term can be longer, for example, in the case of leasing cultural heritage sites on a long-term lease by beneficiaries. Such objects can be leased for up to 49 years. There is no perpetual lease. 

The lease fee is calculated based on the book value of the object. For example, if the object is rented for a month, the lease fee is 1% of the book value, for a period from 24 hours to one month is 0.03%.

Lease agreements are being extended at auction. Exceptions to this rule are described in Article 18 of the Law. For example, agreements concluded for up to 5 years and extended for the first time, concluded with organizations that are included in the list of persons providing socially important services to the population, including the activities of Oschadbank and Ukrposhta, can be extended without an auction.

If the lease agreement is extended by the current lessee, they have the preemptive right to extend the agreement through an online auction. And in this case, the rent for them is set at the level of the best offer. 

In addition to the theoretical part, the lecturers of the module demonstrated how to search for the data on lease on the websites of the State Property Fund and Prozorro.Sales, and also answered questions from the audience.

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